Oil hits three-year high as natural gas crisis hits crude market
A shortfall in global energy supplies spilled into crude markets on Tuesday, pushing oil prices to their highest levels in three years.
Brent crude oil, the global benchmark, touched the $ 80 per barrel mark early in the session and rose 1% for the last time to $ 79.54 per barrel and is on track for its highest close since October 2018. U.S. crude futures rose 1.2% to $ 76.36 per barrel, also on track to close at its highest level in three years.
The two major benchmarks have jumped about 11% over the past month as part of a broader recovery in energy markets, with depleted natural gas stocks and a rebound in economic activity sparking off fierce competition in Europe and Asia for natural gas to supply their electricity markets.
“The oil decision is really linked to the global energy crisis arising from the gas-fired electricity market,” said Norbert Rücker, head of economics at Swiss private bank Julius Baer..
“This is now spilling over into the oil market due to the expectation that this energy shortage means that we are going to use the oil for the overflow demand.” In some power plants, oil can be used to generate electricity when gas prices rise.
A global deficit in natural gas production, depleted stocks and pressure from the Chinese government to cut emissions – by replacing coal with gas – have all played a role in driving up gas prices. This comes as the northern hemisphere moves towards the winter indoor heating months. The supply crisis has already put several UK retail energy providers out of business.
Record gas prices have exacerbated the already tight supply and demand balance in the oil market. According to Helge André Martinsen, senior oil market analyst at DNB Markets, cumulative losses in US production in the Gulf of Mexico following the impact of Hurricane Ida last month have reached more than 30 million barrels and could reach over 55 million barrels before full production is restored. .
This momentum prompted analysts to raise their oil price forecasts. Goldman Sachs on Monday raised its Brent price forecast for the end of 2021 from $ 10 to $ 90 a barrel, with energy research chief Damien Courvalin citing both Hurricane Ida and the likelihood that “the global shortage of gas will increase oil-fired electricity production “.
U.S. natural gas futures jumped 6.7% to $ 6.11 per million U.K. thermal units, putting the contracts on track for their highest settlement since February 2014.
In Europe, benchmark gas futures rose 9.4% to € 83.70 per megawatt hour. That works out to just under $ 98 per megawatt hour and puts contracts on track for their highest closing price on numbers dating back to 2013.
European natural gas prices have more than quadrupled this year and the recovery is unlikely to ease anytime soon, according to Georgi Slavov, head of basic research at brokerage firm Marex Spectron. Weather forecasts point to cold November and December in Europe, which would bolster gas demand, Slavov added.
The prices of coal and carbon permits have also increased, adding to the pressure on energy-intensive businesses and industries in Europe. Futures on coal delivered to the Netherlands rose 2.6% to $ 207 per metric tonne. Emissions trading contracts on the EU carbon market added 0.9% to a trade of € 64.92 per metric tonne of carbon dioxide. This put the permits, required by carbon emitters such as power plants and steel mills, on track to reach a new closing record.
The producing countries of the Organization of the Petroleum Exporting Countries are a wildcard in the oil price mix. They continue to hold barrels from the market to keep prices high enough to profit. But they have a habit of releasing more supply into the market to prevent high prices from stifling demand.
OPEC, which releases its long-term energy forecast on Tuesday, is already easing production cuts that have supported oil prices during the pandemic. It is meeting next week to discuss possible further increases in production.
“OPEC continues to increase its production and [the market is] foam, but by next year we are confident that we will see much lower prices, ”said Mr Rücker of Julius Baer.
—Joe Wallace contributed to this article.
Write to David Hodari at [email protected]
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